• Stock has corrected 11% since our last downgrade.
• We believe SATS' share price fully reflects weak earnings outlook in FY21.
• On track for recovery in FY22F with Changi opening up.

Upgrade to HOLD, With Target Price at S$2.64

• Stock has corrected 11% since our last downgrade.
• We upgrade our view on SATS (SGX:S58) from negative to neutral as we do not see further downside on the stock on the back of Singapore coming out of the Circuit Breaker and allowing passengers to transit through Changi from 2 June. This is positive for SATS, and barring another widespread outbreak, places SATS on the path to earnings recovery in FY22F.
• However, the outlook for regional aviation remains muted as regional travelers remain cautious. Hence, we are now neutral but not positive. No change to our earnings forecasts and Target Price.
• Risks would be a second wave of COVID-19 infections regionally which would prevent regional travel from recovering and derail our earnings forecast.

Recovery on the Cards

• Singapore is coming out of Circuit Breaker, recovery anticipated to be slow: Singapore will come out of its Circuit Breaker on 2 June, with businesses gradually easing their way back into operations. While precautionary measures will still be in place, we expect a slow recovery of economic activities. According to economics desk, Singapore’s GDP recovery will be long and protracted, with a return to pre-COVID levels anticipated only at the end of 2021, in line with many other trade dependent, industrial economies.

Passengers Allowed to Transit Through Changi From 2 June

• As part of the Circuit Breaker easing measures, travelers will be gradually allowed to transit through Changi from 2 June. Although this is not expected to cause a sharp spike in Changi’s throughput for now, it at least kickstarts passenger arrivals on the path to recovery.

Recovery in Changi and Regional Aviation Expected to be Slow

• Singapore’s tourists and Changi’s arrivals have been bad and will be poor till June. The question now is the pace of recovery of passenger arrivals after crashing by 70% or more from March till May. Although the gradual opening of Changi will help to improve Changi’s throughput from here, we expect safeguards to still be in place, with many travelers still taking a cautious stance and will only undertake essential travel. Hence, we expect regional aviation recovery to be muted and Changi to recover gradually, in line with the slow GDP recovery scenario forecast by our economics desk.

Upgrade to HOLD, Maintain S$2.64 Target Price

• We upgrade our view on SATS to neutral post SATS' share price correcting by 11% and do not see further downside for the stock.
• With Singapore coming out of the Circuit Breaker, we see recovery on the cards. However, we are yet to turn positive since demand for regional aviation will take time to pick up. No change to our earnings and Target Price.
• Upgrade SATS to HOLD.
• Risks would be a second wave of infections regionally which will prevent regional travel from recovering and derail our earnings forecast.

Source: DBS Research - 1 Jun 2020